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CSX Cuts Financial Targets After Summer Service Woes -- 2nd Update

CSX Corp. on Wednesday lowered some of its financial targets for the year after a summer of railway congestion and service woes as new CEO Hunter Harrison implements his precision railroading strategy.

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The railroad said due to various operating challenges in July and August, it now expects its operating ratio, a closely watched metric, "around the high end of the mid-60s" percentage range, instead of being squarely in the mid-60s. Operating ratio is the percentage of revenue consumed by operating costs, so a decline represents an improvement.

CSX also scaled back its per-share profit growth to between 20% and 25% this year, instead of being in the higher end of that range.

Shares of the company, which fell in premarket trading, advanced 4% to $51.04 Wednesday morning after executives stressed that the problems were being resolved. The stock was trading around $35 before Mr. Harrison disclosed he was joining an activist investor's campaign to run the railroad but the shares have has retreated from recent highs around $55.

Mr. Harrison took over in March and promised to run the company's 21,000-mile network more efficiently by idling excess equipment, closing some freight yards and running trains on a tighter schedule. However, the changes have caused congestion, delays and erratic service, according to customers, some of whom have complained to rail regulators.

In statement Wednesday, Mr. Harrison said that the bulk of the service challenges are behind CSX, and that key metrics, including train velocity and car dwell, are improving.

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At an industry conference Wednesday, CSX Chief Financial Officer Frank Lonegro said the railway has implemented more than 1,300 changes to train schedules since March, with major revisions occurring in early July. The pace of change has moderated in recent weeks, however, which has allowed CSX to recover somewhat from the shock to the network.

Mr. Lonegro added that the railway will likely soon win back freight volume it lost to either trucks or other railroads after working through the disruption caused during the summer.

"These are temporal challenges, they are transitional challenges," Mr. Lonegro said. "You can see we're coming back and we're coming back pretty strong."

CSX executives were scheduled to appear at a Surface Transportation Board hearing about the railway's service issues. Several shippers have already filed notice to present details of the problems over the summer. The hearing, scheduled for Sept. 12, was postponed on Wednesday because of Hurricane Irma.

Mr. Lonegro said the regulator is "doing their job" in addressing shipper complaints. And CSX executives plan to demonstrate they are recovering from early problems. "When the customer raises their hand and says, 'Hey, I'm having a challenge with my service,' the STB does the right thing and asks questions of us," Mr. Lonegro said.